Yunnan Rural Financial Development Research

Finance is the kernel of the modern economy, and rural finance is a critically important component. The core issue for finance in a developing country is finance's ability to promote internal growth. Financial reforms primarily focus on easing financial repression, increasing the depth of the counties'financial market, and finally and most importantly to unleash the country's financial growth potential.In the course of rural economic development, finance's main goal is the allocation of capital. With a long-term vision summarized by "when industry is the pillar of development, urbanization leads", the development of most Chinese rural areas is left lagging behind. The scarcity of capital in rural areas becomes more and more pronounced, and the disparity between the financial and economic development between the industrialized areas and rural areas becomes ever more accentuated.Concerning the "three agricultures"(e.g. rural areas, industrial agriculture and farmers) problem, the solution is directly and perhaps indirectly dependent on the development of rural finance.On the whole, there is a sharp contrast between rural finance in China and that of the urban financial system.As a less developed region of China, the financial development of Yunnan's rural areas have lagged far behind. When the state-owned commercial banks adopt an overall strategy, the majority of these business and financial institutes withdraw from the rural markets. The Yunnan Rural Credit Cooperatives face the'one-pillar bridge'problem.The rural system of informal finance development is incomplete. The demand for financing is not large.The financing needs of a large number of rural areas cannot be met.This article is built upon Financial Development Theory, the link between financial deepening and financial development and economic growth, analyzes Yunnan's current rural financial situation, its financial structure, market interest rates in the rural system, rural financial demands, as well as rural financial development, rural economic growth, farmer's income, and other rural financial development issues.This article is split into three parts spread over eight chapters including the very first part, which is the guidance and theoretical basis of the whole.The first chapter is the introduction and theoretical foundations of this article, and the topic's background and significance.This is followed by a review of the theory of financial development and rural finance development theory. The theoretical basis for the article is established.The second part consists of sections3through7, and constitutes the core of the article.In particular, part2focuses on Yunnan's rural financial development issues through the lens of rural financial development, its structure, migrating rural interest rates to a more market driven system, rural financial requirements, as well as the correlations between financial development and rural economic growth, and the relationship between rural household incomes and Yunnan rural financial development issues.A fundamental assessment of rural financial development is in three sections covering:the variations in rural savings and loans, Yunnan's rural Financial Interrelation Ratio (FIR) and the differences between Yunnan's urban and rural financial development. Generally, Yunnan's rural savings and loans are small in scale compared with that of the whole province's saving and loan industry, and the development trend is slow. Furthermore, the FIR in Yunnan's rural areas is low. The FIR is far below both that of the province as a whole and the urban areas, and the gap between the two is expanding.The financial structure of Yunnan's rural areas is comprised of two elements:formal and informal financial entities.Through some30years of development, Yunnan's rural financial system has come to be based on cooperative financial institutes, with the collaboration between commercial finance and financial policy, other forms of banking and informal banking supplement the formal financial system.Simultaneously, all sorts of non-standard financial activities are widely found in Yunnan's rural areas, these non-standard participants comprise a comparably large amount of Yunnan's rural economic activity.Both formal and informal financial institutes display individual advantages and limitations regarding financial information, cost, and processing systems. Their respective capabilities help to determine Yunnan's rural economic society and financial services while these two groups compete and complement one another.Most of rural residents and rural SMEs (small and medium enterprise) face a market where loans are offered by both formal or informal financial institutions.At the same time, the different financial markets have their own interest rate policies and features.Nevertheless, interest rate controls is a critical feature in a developing country's financial controls, hence, interest rate marketization has become a key requirement for the financial system to mature. It is a positive practice to promote interest marketization at rural financial institutes to improve the availability and ensure the sustainability of rural financial services.The development of rural finance will finally be answered through the satisfaction of financial demands at the micro-level. There is strong evidence to support that micro-finance can satisfy the needs of the rural areas.An outcome from a questionnaire to Yunnan's rural areas reports that the financial requires of Yunnan's rural residents comes in multiple levels.For instance, farmers of deferent economic situations have different borrowing needs.There is a large difference between the tenor of loans and the period over which the money is actually required..Not all urgent financial demands can be satisfied due to the serious financial restrictions in Yunnan's rural areas, particularly, when dealing with formal financial institutes.The lower the income of a family of farmers, the more severe financial restrictions they will face. Quantitative analysis indicates that the educational level,family income, tangible assets, quality of the family business management, as well as non-agricultural income greatly influence the farmer's credit requirements.A sampling of Yunnan's financial development and rural economic growth and rural resident's income resulted that Yunnan's financial development (including urban&rural financial development and rural financial development) have not yet dramatically facilitated rural economic growth and rural resident's income.On the contrary, Yunnan's financial development has hindered the rural economy from growing. Rural economic growth provides an important precondition for financial development as a whole. To a certain extent, the test result reflects weak support for the Yunnan government's financial policy for "three agricultures".In the end of the article, the author advocates a great number of policy suggestions for promoting Yunnan's financial development based upon the previous analyses of Yunnan's rural financial development. Suggestions focus on enlarging the scale of financial activities, optimizing the financial tools and financial institutions, for the purpose of constructing a sound and complete financial market mechanism.